Issue #84: Strong Fundamentals With A Special Niche And An Undervalued Leader in 5G Networks

Summary

Climb Global Solutions, Inc. is an IT distribution company specializing in emerging  technologies, supporting vendors by distributing software and hardware solutions across sectors. With its focus on smaller, high-growth vendors, Climb targets a $22 billion addressable market in the $650 billion global IT sector. Climb has posted a 14% annual revenue growth rate since 2018, and has maintained strong cash flow – more than enough for it to acquire five different companies in cash in the last four years. As demand for innovative software grows, Climb may be in a good position to capitalize on this.

Ceragon Networks provides wireless transport solutions, which is essential for connecting mobile network sites. Ceragon’s customers are mainly telecom companies and private networks, the latter of which include enterprises from the energy, utilities, government and oil and gas industries. Serving over 2,200 customers across 130+ countries, Ceragon is the market leader in its niche and is poised to grow faster than the broader markets. The company has achieved steady revenue growth since 2020, including an 18% rise from 2022 to 2023. While $CRNT has already risen 78% in the past year, hitting a four-year high, analysts see significant potential upside.


Climb Global Solutions, Inc. ($CLMB)

$130.94- Share price at time of writing

Source: tradingview.com

Summary:

  • Share price at the time of writing: $130.94
  • Climb Global Solutions ($CLMB) is an IT distribution company that focuses on smaller but higher-growth emerging technologies. 
  • Its unique niche has the potential to outperform the broader IT market, and is estimated by Climb to have a total addressable market of $22 billion.
  • Climb has achieved double-digit revenue growth since 2018, coupled with growing profit margins. This has allowed it to acquire five different companies in cash in the last four years alone.
  •  As demand for innovative software continues to rise, Climb is well-positioned to benefit from these opportunities.

What they do:

Climb Global Solutions, Inc. ($CLMB) is an IT distribution company focused on emerging and cloud-based technologies. It helps technology resellers, consultants, and system integrators distribute IT products and services worldwide. The company offers a wide range of software and hardware solutions designed for cybersecurity, cloud computing, networking, infrastructure management and several others.

Climb reports revenues across two segments: 

  • Distribution: operates under the “Climb Channel Solutions” brand. This segment accounted for 92% of the company’s revenue in 2023. It distributes technology products like software licenses, maintenance agreements and hardware from vendors including Microsoft and Intel to resellers. The business model emphasizes drop-shipping and electronic digital interchange (EDI).
  • Solutions: Branded as “Grey Matter,” products in this segment are purchased from OEMs, software developers or distributors and sold to end users. Climb offers customer service, billing, sales, and marketing support to increase sales.

In recent years, Climb has been active in company acquisitions, having acquired five companies over the last four years in order to expand its geographic footprint, and with plans to continue this expansion in the coming years. The company now operates globally, with distribution facilities in New Jersey and Ireland, and key sales regions in North America, Europe and Canada. 

Founded in 1982 and publicly traded since 1995, Climb was formerly known as Wayside Technology Group until it changed its name in 2022. 

What the market is saying:

$CLMB does not often get mentioned on social media, likely due to it being relatively unknown. Where it does get talked about, investor sentiment is generally positive, with discussions around how it’s a “hidden gem.”

A recent comment from Reddit:

$CLMB is interesting, since they are just basically middle men. They work with smaller saas venders to sell out to customers and data centers. They really have like no analyst coverage, always trade with cheaper side fundamentals (since probably no one knows of the company), and the asset return is crazy.

  • _hiddenscout

Why $CLMB could be valuable:

Industry

Climb operates within the IT distribution and cloud solutions industry, specifically catering for vendors in the “challenger” and emerging technology space. It projects the global IT market to currently be worth $650 billion, with an estimated growth rate of between 6-10% in the near future. 

Climb carved its specific niche in challenger brands, believing that its focus on younger, faster-growing vendors allows it to access higher growth potential of approximately 10-16% a year. Unlike large vendors that can leverage their scale and strong brand recognition to sell directly to end users, smaller vendors rely on distributors to bring their products to market. This is where Climb excels, serving as an outsourced sales team for these vendors and providing the specialized expertise needed to promote and sell emerging and niche products. Within the US, Climb does not have any pure play publicly listed competitors in the same niche.

As of last quarter, Climb had over 100 vendor partnerships. Overall, it believes it has a total addressable market of over $22 billion.

Since 2020, Climb has aggressively acquired companies to either expand or improve, funding all its acquisitions with excess cash. Its latest one was just last August for Douglas Stewart Software & Services, which is a specialty distributor focused on software-as-a-service solutions for education providers. By continuously evolving its portfolio and supporting emerging technology vendors, Climb is well-positioned to capitalize on the growing demand for innovative IT solutions.

Financials

For years, Climb enjoyed steady revenue growth, but this trajectory shifted in 2016 with a significant dip. Fortunately, this drop it revenues isn’t a red flag – it stemmed from the adoption of a new accounting standard that changed how Climb recognized revenue. Since then, Climb’s has continued posting stronger revenues, recording a compound annual revenue growth rate of approximately 14% since 2017. 

$CLMB TTM revenues per quarter from 2009 to October 1, 2024:

Source: macrotrends.com

To help understand how Climb has grown overtime, the company also continues to report a sales metric called “Adjusted gross billing,” which calculates sales using how Climb reported revenues prior to the accounting change. This is calculated by adjusting net sales (what’s reported now) with the cost of sales where Climb worked as an agent. This metric shows its total volume of business.

Source: Climb Global Solutions Investor Presentation Dec 2024

Overall, Climb boasts strong and consistent sales growth over a long period of time.

In addition to this, the company has been improving its profit margins over time – increasing this by 39% over three years.

As a result, its bottom line has recorded healthy growth.

$CLMB TTM net income per quarter from 2009 to October 1, 2024:

Source: macrotrends.net

But where Climb shines the most is in its cash flow statement. Aside from 2022 where Climb acquired two companies using cash, the company has recorded high free cash flows every year. This is largely thanks to its business model that focuses almost exclusive on distributing software – allowing it scale and freedom from physical distribution networks. 

Thanks to its growing cash balance and growing sales figures, Climb is well-positioned to continue M&A activity, which has so far been financially rewarding.

Price action

$CLMB has performed impressively over the last year, up 130% and trading close to its historical high. The consensus analyst price target shows that its current share price is close to but slightly below its fair value.

What the risks are:

1️⃣ Dependence on key vendors: Climb’s reliance on a few key customers, including large resellers, for a significant portion of its revenue could create risks. Losing a major customer or seeing a significant reduction in orders could have a considerable impact on the company’s financial performance.

2️⃣ Acquisition Integration: Climb has pursued numerous acquisitions in recent years. While these acquisitions can bring growth, they also carry integration risks. Difficulties in combining operations, cultures or systems from acquired companies, especially given that Climb has acquired many in a short time, could hinder the anticipated benefits or create operational challenges.

3️⃣ Complexity of Multi-Channel Model: Climb’s distribution model relies on multiple channels, including VARs, system integrators, and consultants. Managing this complex network can be challenging, especially as Climb expands into new regions or sectors.

Bottom line: Climb Global Solutions ($CLMB) is an IT distribution company that focuses on emerging technologies, helping vendors by distributing both software and hardware solutions across various industries. By concentrating on its niche of smaller, fast-growing vendors, Climb targets a $22 billion market with a potential 10-16% annual growth rate. The company has posted double-digit sales growth in recent years that has seen it maintain a robust cash flow, enabling it to acquire five companies in cash over the past four years. Over the last year, Climb’s stock has surged by 130%, with analysts still believing it may have a bit more room to grow.


Ceragon Networks Inc. ($CRNT)

$4.53 – Share price at time of writing

Source: tradingview.com

Summary:

  • Share price at the time of writing: $4.53
  • Ceragon Networks ($CRNT) is a global provider of wireless transport solutions that help telecom companies and private networks deliver connectivity in lieu of fiber optic technology.
  • About 45% of telecom sites use this technology, and with 5G expansion, demand is expected to rise.
  • Serving over 600 telecom customers and 1,600 private networks in 130+ countries, Ceragon’s move into private networks could grow its market by a further $11.6 billion by 2028. 
  • The company has seen steady revenue growth, boasting an 18% increase from 2022 to 2023.
  • $CRNT is up 78% over the last year but the consensus analyst price target suggests there may still be further upside potential for the stock.

What they do:

Ceragon Networks ($CRNT) is a global provider of wireless transport solutions, helping telecommunications companies and service providers deliver connectivity worldwide. Its solutions enable cellular operators and private networks to build and evolve networks. The company’s wireless transport technologies are tailored to meet the growing demands of 5G networks, private networks and mission-critical communications. 

In addition to hardware offerings, Ceragon also provides services to tailor its wireless solutions to fit every customer’s specific needs. Similarly, the company also provides a management software called “Ceragon Digital Twin” that clients can use to monitor and improve their networks.

Ceragon only reports revenues in a single segment, however shows the regional distribution of Ceragon’s revenues last year:

  • North America: 7%
  • Europe: 11%
  • Africa: 8%
  • India: 34%
  • APAC (excluding India): 7%
  • Latin America: 13%

Domiciled in Israel, Ceragon boasts a global customer base with over 600 telecom customers and 1,600 private networks in more than 130 countries.

What the market is saying:

Despite being a smaller company, $CRNT actually gets several mentions on social media. The general sentiment is around Ceragon’s growth potential and how its valuations look attractive compared to the broader market. It’s seen a lot of hype recently, thanks to the strong momentum of its stock price.

Source: quiverquant.com

Some very recent comments from Reddit:

CRNT’s momentum is backed by solid fundamentals. Their proprietary SaaS model for over-the-air upgrades is genius – customers only pay for the data they need, with easy upgrades from 10-100Gbps. No tower climbing needed like their competitors.

  • Phoenixchess

“I’m in, it’s a great company. I stayed away from stock trading last year but in years prior this was on my watch list from when deadnsyde shouted it out in 2020, and I’m mad I missed the low price last year. Bought about 2 weeks ago at $4.70.”

  • Active78

“I really like this stock. Everything about it screams that it is undervalued. Has multiple buy ratings with a target price of $10. Sits currently at $4.67.”

  • Normal-Meringue7592

Why $CRNT could be valuable:

Industry

Ceragon Networks operates in the wireless transport industry, which is essential for connecting mobile network sites like cellular base stations to the rest of the network. 

To the unfamiliar, wireless transport plays a key role when fiber optics aren’t available or if quick deployment is needed. It’s more cost-efficient and faster to set up than fiber optics, and has shown high reliability and low maintenance costs. Currently, about 45% of global telecom sites rely on this technology, and this number is expected to grow in the coming years. As 5G expands, the demand for solutions like Ceragon’s is expected to rise significantly.

In addition to serving telecom operators, Ceragon’s technology recently expanded to support private networks. This means Ceragon can now service other industries such as public safety, oil and gas, and security. Earlier this month, Ceragon also acquired End 2 End technologies, to allow it to further service energy and utilities companies. 

Overall, the wireless infrastructure market size is expected to grow at a CAGR of approximately 11% to 2029. Ceragon also entered the private networks market after estimating that it could grow to an addressable market size of $11.6 billion by 2028 – double that of 2024’s. Last year for example, Ceragon signed a $150 million contract with the Indian Government. 

Financials

Since 2020, Ceragon has posted consistently growing revenues every quarter. Revenues grew an impressive 18% from 2022 to 2023, and its latest quarterly report showed a similar growth rate from 2023 to 2024. While guiding for total revenues of between $390 million to $400 million for FY 2024, Ceragon aims for this to grow to $500 million by 2026.

$CRNT’s TTM quarterly revenue from 2009 to October 1, 2024:

Source: macrotrends.net

Ceragon’s profit margins are also impressive. Since 2021, it has recorded gross profit margins of at least 30% – a noteworthy number for its industry. It recorded a 35% gross profit margin last quarter.

Despite some strong top-line numbers however, high R&D expenses had eaten into Ceragon’s profitability in recent years. It only began posting positive net income again in the last few quarters. On the bright side, the company now expects this to improve in the near future.$CRNT’s quarterly net income from 2009 to October 1, 2024:

Source: macrotrends.net

Where Ceragon shines is in its balance sheet. The company boasts a high balance of current assets ($234 million) – enough to fully offset total liabilities ($160 million). This eases concerns of liquidity issues despite its fluctuating bottom line. Similarly, Ceragon’s quarterly free cash flow is generally on the positive end.

Price action

$CRNT has rallied over the last year to be up 78% and trading at its highest levels in four years. Despite this, the consensus analyst price target of $7.33 indicates a significant potential upside to $CRNT’s share price.

What the risks are:

1️⃣ Geopolitical Risk: Ceragon is domiciled in Israel and may be exposed to political and military instability in the region, which could disrupt operations, supply chains or customer relationships.

2️⃣ Revenue Concentration: Ceragon relies on a single segment for revenue, making it vulnerable to changes in demand within the wireless transport industry or shifts in market trends, particularly as it moves into private networks and 5G.

3️⃣ Profitability Risks: Although revenue growth has been strong, Ceragon’s net income has been impacted by high R&D costs, and there is uncertainty about its ability to consistently maintain profitability.

Bottom line:  Ceragon Networks ($CRNT) is a global provider of wireless transport solutions that helps over 2,200 telecom companies and private networks in 130+ countries deliver connectivity. Ceragon’s technology is cost-efficient and faster to deploy than fiber optics, with growing demand expected as more telecom sites rely on this solution. The company has posted consistent revenue growth in recent years, with a notable 18% increase from 2022 to 2023. Although high R&D expenses have affected profitability, Ceragon has posted positive net income recently and expects continued improvement. $CRNT has risen 78% over the past year, with analysts expecting further potential upside.

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